While Japan has two advantageous investment vehicles accessible to both Japanese citizens and foreign residents, namely the Nippon Individual Savings Account (NISA) and the Individual Defined Contribution (iDeCo), conventional wisdom in internet finance circles dictates that U.S. taxpayers should steer clear of them. Since their country applies its full tax code to citizens and green card holders abroad, the tax implications and potential pitfalls are not worth the hassle, the truism goes.

Japan resident Rick Gundlach, a certified public accountant and attorney who runs his own practice out of both Pennsylvania and Chiba Prefecture, disagrees.

“Something I recurrently face as a U.S. tax preparer are individuals saying Americans can’t do iDeCo or NISA,” he says. “If there’s any follow-up, it’s to the effect of ‘because PFICs.’”

PFIC stands for Passive Foreign Investment Company, basically a foreign mutual fund.

“There’s a special tax regime for PFICs because Congress wants to avoid situations where someone can just park their money in an untaxed rabbit hole outside the U.S.,” he says.

However, Gundlach explains that there have been at least 15 years of regulatory dialogue between the Internal Revenue Service (IRS) of the United States and residents abroad about whether foreign government-sponsored retirement programs, where you usually invest in tax-deferred accounts and pay tax once the money is withdrawn at retirement, should be treated like those in the United States.

“The understanding of the tax preparer community is that the IRS is no longer treating these programs (like Japan’s iDeCo) like tax-dodging rabbit holes,” he says. “Instead — provided that such countries aren’t taxing the retirement funds along the way — the IRS won’t seek taxes out of them either.”

In other words, citizens and green card holders with a filing obligation back in the U.S. can use iDeCo. There are no tax issues except reporting. Once their account is over $10,000 at any point, they have to report it to the Treasury under the rule called Report of Foreign Bank and Financial Accounts (FBAR).

Gundlach points out that Japan has another top-up pension program called Kokumin Nenkin Kikin (National Pension Fund). Those not in an employer pension in Japan are eligible to join. You commit to a basic monthly premium based on your age, with extra contributions possible up to ¥68,000 a month, an allowance that’s shared with iDeCo.

“There are no PFIC reporting concerns because the fund holds and owns the PFICs and no investment planning decisions to worry about because the fund is professionally managed,” he says.

Gundlach adds that Americans are also eligible to use NISA — but with caveats.

“What’s trickier is that NISA is not a retirement fund. It’s a tax-free investment program. Still, depending on what the participant chooses to invest in, gains may still accrue at a 0% federal tax rate for many participants. You’re allowed so many thousands of dollars of 0% taxed income a year, called the ‘standard deduction,’” he says, adding that U.S. states don’t have double-tax treaties, so it’s up to the state how they treat NISA.

“Additionally, none of the retirement gurus seems to know about the $25,000 reporting exemption ($50,000 for a couple) that has been in the tax law for many years,” he adds.

Gundlach says most U.S residents of Japan don’t reach these hurdles, so it’s unfortunate they’re discouraged from joining a beneficial program because of hearsay. As they hesitate, there’s less time to build a retirement or investment portfolio of some weight.

“I have clients who do both iDeCo and NISA. I encourage anyone who can to join these programs if they have the funds available,” he says.